WorldCom Accounting Fraud Scandal. A federal judge in Manhattan yesterday approved a $750-million settlement between embattled WorldCom Inc. and the Securities and Exchange Commission stemming from the firm’s $11-billion corporate accounting fraud.
In a 14-page order, U.S. District Judge Jed Rakoff said the settlement was “fair and reasonable” to end one of the largest cases of corporate accounting fraud in U.S. history.
While the SEC and WorldCom had originally worked out a $500-million fine in May, Rakoff’s order boosted the sanction to $750 million, a figure reached after many complained that the company would emerge too easily from bankruptcy.
The judge was nonetheless willing to give WorldCom some credit for its recent efforts. “The court is aware of no large company accused of fraud that has so rapidly and so completely divorced itself from the misdeeds of the immediate past and undertaken such extraordinary steps to prevent such misdeeds in the future,” Rakoff wrote.
He noted that Richard Breeden, a federal monitor appointed to prevent corporate looting and document destruction, has acted as a “financial watchdog,” imposing extraordinary strict discipline upon the company, including appointing an entire new board of directors and a new CEO.
However, the judge did not completely absolve the company from its past, adding, “This is not to say that the sins of the past can be forgotten or wholly forgiven. No matter how much the company has transformed itself, no matter how different a company it is now from the company that was used as a vehicle to commit the aforementioned frauds, those frauds were still colossal and must be punished.”
Rakoff’s decision is one of several court proceedings stemming from the case. WorldCom’s former chief financial officer, Scott Sullivan, has been indicted, pleaded not guilty and awaits trial by the office of Manhattan U.S. Attorney James Comey, while four others have pleaded guilty to fraud charges.
Meanwhile, a federal bankruptcy judge in Manhattan is presiding over civil suits brought by WorldCom’s creditors, and another federal judge in Manhattan is overseeing federal civil class-action suits brought by shareholders and employees.
WorldCom’s financial troubles came to light last year and the company filed for bankruptcy in July 2002. The company, now known as MCI, issued a statement through its chairman, Michael Capellas: “We believe today’s ruling is a positive reflection of the hard work and dedication of MCI’s 55,000 employees.”
The SEC was not immediately available for comment.
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